Why tipped workers don’t need a raise

Opinion: Movements to raise the minimum wage are misguided

On Feb. 13, worker centers all over America are protesting the $2.13 per hour wage for restaurant employees who receive tips.

They chose this day because that date, 2/13, mirrors the tipped wage — which, by the way, can end up between $9 and $16 an hour including tips, according to the Labor Department.

This year, the Restaurant Opportunities Centers United, a worker center, has scheduled events across the country in cities including New Orleans, Detroit, Chicago, and Washington, D.C. On Wednesday, ROC released a report in Asbury Park, N.J., called “Down the Shore, Everything’s (Not) All Right: The Economic Insecurity of Restaurant Workers on the Jersey Shore.”

Much ink has been spilled on the pros and cons of raising the standard federal minimum wage, which currently stands at $7.25 an hour. President Obama has called for an increase to $10.10 an hour, and in the State of the Union Address he announced that firms doing business for the federal government will have to pay employees working on new federal contracts at least $10.10. No matter that this will increase the deficit by about $1 billion a year — without congressional approval — by raising the cost of new projects, and therefore contractors’ bids.

Not as much attention has been paid to raising the tipped minimum wage. Nearly 50 years ago, federal law created a lower minimum wage for workers who receive tips. It could not be less than 50% of the federal minimum wage. The Small Business Job Protection Act of 1996 detached tipped employees from future minimum-wage increases. This is why the tipped minimum wage is still $2.13 an hour, now 29% of the minimum wage.

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With tips, workers can earn far more than $7.25 an hour. Waiters in Boston earn an average of $13.69 an hour, according to the Labor Department, and waiters in South Florida earn $10.14. Waiter jobs are popular precisely due to the possibility of earning tips. If workers make less than $7.25 an hour, employers have to make up the difference so that the worker makes the minimum wage. For restaurants to be permitted to pay $2.13 an hour, the employee has to retain all tips, and must regularly receive more than $30 each month in additional tip income.

Just as some states set minimum wages above the federal minimum, some states also set the tipped minimum above $2.13. Twenty-four states have a higher tip wage. An additional seven states, most of them in the West, require waiters’ base pay to be at least the state minimum wage.

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ROC is calling for passage of the Fair Minimum Wage Act, sponsored by Rep. George Miller of California and Sen. Tom Harkin of Iowa, both Democrats. It would raise the hourly tipped minimum wage from $2.13 to 70% of the regular minimum wage. At today’s current minimum, this would be $5.08. an hour Then, the tipped minimum would rise with the regular minimum.

According to ROC, “Tipped workers are 70% women, including many mothers who face huge challenges in putting food on their own tables. The restaurant workforce uses food stamps at double the rate of the rest of the U.S. workforce and is three-times as likely to live in poverty…. Tipped workers are counting on their government to hold the private sector accountable to livable wages.”

ROC states that its mission is “to improve wages and working conditions for the nation’s 10 million restaurant workers.” In 2011, the latest year available, ROC listed charitable contributions of $2.7 million, 99% of its total income. But the group is misguided.

On Tuesday, Watchdog.org reported that ROC had claimed charitable tax-exempt status when it applied for grants from the Department of Labor in 2009. It received grants of $275,000, but its charitable status did not come until 2010. The information came to light after House Oversight Committee Chair Darryl Issa requested information from ROC.

Raising the tipped wage has the same disadvantages as raising the regular minimum wage. Low-skill workers and teens who cannot find other jobs would have fewer work opportunities. Last week the Labor Department announced that in January the teen unemployment rate was 21%, and the African-American teen unemployment rate was 38%. Although the average unemployment rate declined from 6.7% to 6.6%, the unemployment rate for teens rose. The youth unemployment rate for people aged 20 to 24 also rose, from 11% to 12%.

People who want to raise the minimum wage, or the tipped wage, have the best of intentions. They want workers to be better off. But fewer than 3% of American workers earn minimum wage. Half of them are under 25 years old. They use the minimum wage job as a stepping stone to a better job.

Raising the minimum wage, or the tipped minimum wage, discriminates against low-skill and young workers. With a minimum wage of $7.25, the hourly cost to the employer is about $8, including Social Security, workers compensation, and unemployment insurance. This means that in the United States those with skills less than $8 an hour are effectively not allowed to work. Advocates of raising the minimum wage want to make this even higher.

If people cannot get their first job, they cannot get their second job, nor their third. The reason so few workers in America make the minimum wage or below is that they rapidly move on. Employers do not pay above-minimum wage jobs out of kindness, but because that is the only way they can prevent employees from moving to another job.

People who take minimum wage jobs need an entry ramp onto the major highway that is called the Job Market. Once they are in, they can keep going, or speed up. Raising the minimum wage, or the tipped minimum wage, will reduce job opportunities for those who have no alternative except sitting at home or hanging out on the streets.

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